The Best ESG Funds Of January 2024 (2024)

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The Best ESG ETFs of January 2024

FundExpense Ratio
Vanguard ESG U.S. Stock ETF (ESGV)0.09%
Pimco Enhanced Short Maturity Active ESG ETF (EMNT)0.25%
Nuveen ESG Dividend ETF (NUDV)0.26%
iShares MSCI Global Sustainable Developmental Goals ETF (SDG)0.49%

Vanguard ESG U.S. Stock ETF (ESGV)

The Best ESG Funds Of January 2024 (4)

Expense Ratio

0.09%

Dividend Yield

1.21%

Avg. Ann. Return Since Inception (September 2018)

11.01%

The Best ESG Funds Of January 2024 (5)

0.09%

1.21%

11.01%

Why We Picked It

If you had to pick just one ESG exchange-traded fund, the Vanguard ESG U.S. Stock ETF would probably be it. With nearly 1,500 holdings, almost all from the U.S., this ETF hods an extremely well diversified portfolio that meet its environmental, social and governance principles. About 70% of the holdings are large-cap stocks, but it also has exposure to mid- and small-cap names.

ESGV abstains from buying stocks that do not meet its ESG criteria. You won’t find adult entertainment, alcohol, tobacco, cannabis, gambling, weapons, coal, oil, gas, or nuclear power firms in the portfolio. The fund also excludes companies that don’t meet certain human rights and anti-corruption standards.

Note that ESGV’s energy sector weighting is nearly 0%. In contrast, the fund has roughly one-third of its shareholders’ money at work in the technology sector. It has roughly 15% in health care and slightly less in financial services and consumer cyclicals.

Pimco Enhanced Short Maturity Active ESG ETF (EMNT)

The Best ESG Funds Of January 2024 (6)

Expense Ratio

0.25%

Dividend Yield

5.20%

The Best ESG Funds Of January 2024 (7)

0.25%

5.20%

1.78%

Why We Picked It

The Pimco Enhanced Short Maturity Active ESG fund aims to preserve capital while maximizing income. This actively managed ETF focuses on the securities of issuers whose ESG practices align with PIMCO’s ESG investment strategy.

EMNT seeks to boost income by investing in high-quality, short-term, dollar-denominated debt. This emphasis positions the fund to benefit from current trends. Interest rate hikes by the Fed make short-term debt increasingly attractive since it’s far less likely than long-term debt to fall in value as rates rise.

In fact, EMNT aims to provide shareholders with higher income than they’d typically expect from a money market mutual fund.

EMNT’s holdings average an effective duration of just short of four months. That’s roughly 50% less than the fund’s Morningstar category average. Effective duration shows the expected price decline of a bond or bond fund when interest rates rise by 1%. In this case, it should decline by about 0.32%.

The fund’s roughly 200 holdings are predominantly U.S. corporate debt and U.S. government agency debt. A small percentage of its portfolio consists of U.S. Treasurys and international debt. Despite being actively managed, the 0.25% management fee is less than two-thirds as much as the 0.405% average for its Morningstar ultrashort-bond-fund category.

Nuveen ESG Dividend ETF (NUDV)

The Best ESG Funds Of January 2024 (8)

Expense Ratio

0.26%

Dividend Yield

3.04%

Avg. Ann. Return Since Inception (September 2021)

-0.98%

The Best ESG Funds Of January 2024 (9)

0.26%

3.04%

-0.98%

Why We Picked It

With five decades of experience in ESG investing, Nuveen is a veteran in the responsible investing space. However, the Nuveen ESG Dividend ETF has earned a cautionary note: the fund’s average annual return since inception is negative 0.95%.

NUDV, which opened in September 2021, is too young to have much of a track record. Still, here’s what you should like about the fund: Its trailing 12-month dividend yield is nearly a full percentage point higher than its Morningstar large-cap value fund category average. It’s also higher than the broad overall stock market’s, as measured by the popular S&P 500 Index.

This passively managed fund selects high-dividend U.S. stocks, which have been screened for specific environmental, social and governance ESG criteria. Its top holdings include blue-chip stocks like Pfizer (PFE), Pepsico (PEP), Coca-Cola (KO), Merck (MRK), Home Depot (HD) and Cisco (CSCO). If you want a fund positioned to deliver above-average income yield with ESG investing, consider NUDV.

The Best ESG Mutual Funds of January 2024

FundExpense Ratio
Fidelity U.S. Sustainability Index Fund (FITLX)0.11%
Fidelity International Sustainability Index Fund (FNIDX)0.20%
Calvert US Mid Cap Core Responsible Index Fund (CMJAX)0.49%
BlackRock Sustainable Advantage CoreAlpha Bond Fund (BIAAX)0.54%

Fidelity U.S. Sustainability Index Fund (FITLX)

The Best ESG Funds Of January 2024 (10)

Expense Ratio

0.11%

Dividend Yield

1.23%

5-Year Avg. Annual Return

12.62%

The Best ESG Funds Of January 2024 (11)

0.11%

1.23%

12.62%

Why We Picked It

The Fidelity U.S. Sustainability Index Fund is a great low-cost, core stock fund for ESG investors. This passive index fund tracks the MSCI USA ESG Index, and the portfolio includes a wide range of different-sized U.S. companies from diverse industries, with varying dividend yields, earnings growth rates and valuation metrics.

The bulk of FITLX’s 273 holdings are large-cap stocks, and the balance are mid-cap names. Most of them are growth or blend oriented. More than half of the fund’s portfolio is made up of technology stocks , health care and financial services stocks.

Over the past two, three and five years, FITLX has outperformed its large-cap blend category average. Its dividend yield is also higher. Note that the fund earns additional income by lending securities to other investors. Finally, the 0.11% annual fee is tough to beat.

Fidelity International Sustainability Index Fund (FNIDX)

The Best ESG Funds Of January 2024 (12)

Expense Ratio

0.20%

Dividend Yield

2.04%

5-Year Avg. Annual Return

3.59%

The Best ESG Funds Of January 2024 (13)

0.20%

2.04%

3.59%

Why We Picked It

The Fidelity International Sustainability Index Fund adds international diversity to your ESG portfolio. It’s a great choice for this market, as in recent months foreign stocks as a group have outperformed U.S. stocks after years of lagging. FNIDX tracks the MSCI All Country World Index (minus the U.S. components).

The fund’s portfolio includes large-caps international stocks , more than 70% of which are from developed markets. The rest are from emerging markets. Companies included in MSCI’s index are screened for environmental, social and governance factors, relative to their sector competitors.

The portfolio includes around 900 holdings. About 21% of its stocks are in financial services, while tech, industrials and consumer cyclicals account for about 12% a piece. Stocks from Japan, the U.K., France, China and Canada are the top geographies represented in FNIDX.

Calvert US Mid Cap Core Responsible Index Fund (CMJAX)

The Best ESG Funds Of January 2024 (14)

Expense Ratio

0.49%

Dividend Yield

0.71%

5-Year Avg. Annual Return

8.98%

The Best ESG Funds Of January 2024 (15)

0.49%

0.71%

8.98%

Why We Picked It

Founded nearly 50 years ago, Calvert is known for investing in responsible businesses across the globe. If you want a fund with hefty exposure to mid-cap stocks, kick the tires on Calvert US Mid Cap Core Responsible Index Fund. Roughly 80% of its portfolio comprises mid-caps.

CMJAX owns the shares of more than 600 companies. Fund manager Thomas Seto assesses up to 200 variables to measure how potential buys fit Calvert’s environmental, social and governance factors. In its proxy votes, the fund has been a big supporter of gender pay equality. It also favors companies with low or no exposure to fossil fuels as well as carbon and toxic emissions.

The fund’s largest segments are industrial stocks, tech, financial services, health care and consumer cyclicals. At $5,000, CMJAX has the highest minimum initial investment requirement of the funds in this list.

BlackRock Sustainable Advantage CoreAlpha Bond Fund (BIAAX)

The Best ESG Funds Of January 2024 (16)

Expense Ratio

0.54%

Dividend Yield

2.60%

5-Year Avg. Annual Return

0.38%

The Best ESG Funds Of January 2024 (17)

0.54%

2.60%

0.38%

Why We Picked It

The three funds above are index funds, while the BlackRock Sustainable Advantage CoreAlpha Bond Fund is an actively managed option. Bond issuers are screened in part for their potential to deliver positive societal impact. And although the label on the tin is bond fund, BIAAX strives for both capital appreciation and income.

Unfortunately, rising interest rates mean that many fixed-income investments have suffered price declines. A 1% rise in interest rates would typically cause a 6.07% drop in the price of the fund—recall that bond prices move inversely to changes in interest rates. Analysts expect prices to stabilize once interest rate increases stop.

BIAAX owns around 480 bonds with an effective duration of 6.07 years. This sustainable bond fund owns intermediate-term U.S. Treasury, agency and corporate bonds of varying credit quality, mostly investment grade.

*All data is sourced from Morningstar Direct, current as of December 6, 2023, unless noted otherwise.

Methodology

Morningstar Direct tracks nearly 600 ESG-focused mutual funds and exchange-traded funds. To varying degrees, the funds decide which securities to buy based on how diligently the underlying companies rank on social, environmental and governance issues.

We began our hunt by paring Morningstar’s master list to 140 funds by excluding options that required minimum initial investments of more than $5,000. We also eliminated funds that did not lend themselves to the creation of a well-diversified mix of stock and fixed income investments.

Seeking funds with reasonable fees, we then screened out any funds with an annual expense ratio that was above 0.60%. For diversity, we selected passively managed as well as actively managed portfolios.

To meet the requirements of a very broad audience, so we deliberately excluded narrowly focused sector funds, geographically specialized funds and age group-specific target date funds. These screens left us with 18 choices.

The final list of the eight best ESG funds includes broadly diversified choices that are suitable for the widest possible group of investors. We included short and core fixed-income funds along with U.S. and international ESG equity funds. You might create an entire ESG portfolio from funds on the list, or add a few to an existing investment portfolio.

To learn more about our rating and review methodology and editorial process, check out our guide onhow Forbes Advisor rates investing products.

What Is ESG Investing?

ESG investing is a strategy where people put their money to work in companies that have a positive net impact on the environment and society, led by a management team that achieves these goals via better corporate governance. The acronym ESG stands for environmental, social and governance, for the three core pillars of this investing philosophy:

  • Environment. How does a company manage its environmental impact? How much progress has it made in utilizing renewable energy sources? Is it attempting to minimize its carbon footprint? How does it handle air or water pollution arising from its operations? What is its attitude toward climate change? What about sustainability efforts in its supply chain?
  • Social. How does the company improve its social impact? Does it offer fair levels of compensation for employees? What are its policies regarding LGBTQ+ equality, racial diversity and inclusive hiring practices? How does a company advocate for social good in the wider world, beyond its limited sphere of business?
  • Governance. How does management and the board of directors address the interests of the company’s employees, shareholders, and customers? Is executive compensation balanced compared to pay for other employees? How does the company’s board and management drive positive change? Does the board foster diversity in leadership? Are its interactions with shareholders positive?

This is only a sample of the kinds of questions ESG investors ask themselves when they evaluate companies. ESG relies on independent research organizations to score public companies for their performance in addressing these issues. ESG scores aim to provide objective, credible ratings of how well a company manages their environmental, social and governance policies.

What Are ESG Funds?

ESG funds are thematic mutual funds or exchange-traded funds that consider environmental, social, and governance factors in their investment strategies.

They employ a range of different strategies to incorporate ESG criteria when building their portfolios. Some use positive screening, actively seeking out companies with strong ESG performance. Others use negative screening to exclude companies involved in controversial activities such as tobacco, weapons, or fossil fuels.

Choosing ESG funds can help align your investments with your values and support companies that prioritize sustainability, social responsibility and good governance. However, it’s important to note that ESG investing does not guarantee superior financial returns.

How Do ESG Funds Work?

Like any other type of fund, ESG funds adopt one of two possible approaches to portfolio construction. They passively track an index or actively pick investments based on their own research. We’ve included both active and passive ESG funds in our listing.

Active ESG mutual funds and ETFs conduct their own research to identify funds that meet their criteria. Passive ESG funds rely on third-party indexes to screen companies for their compliance with different environmental, social and governance criteria. These indexes choose companies whose ESG scores are above set thresholds, and ESG fund managers build a portfolio of investments that track the index’s performance.

For example, take the MSCI KLD 400 Social Index, launched in 1990. It tracks 400 U.S. companies with outstanding ESG ratings, and includes a mix of small-cap, mid-cap and large-cap companies.

Our profiles of the best ESG funds include a summary of how each fund constructs its portfolio, and whether it tracks an index or uses an active strategy for its portfolio choices. Understanding the ESG methodologies used by each fund is key for investors who want to align their choices with their own views on environmental, social and governance issues.

How to Choose an ESG Fund

Follow these steps to help choose an ESG fund that aligns with your investment goals and values:

  • Define your ESG focus. Are you primarily focused on environmental issues? Are positive social outcomes your greatest concern? Clarifying your objectives will help you narrow your ESG focus.
  • Research ESG fund strategies. Funds employ a range of strategies for accomplishing their ESG missions. Some may prioritize positive screening, actively selecting companies with strong ESG performance. Others may emphasize negative screening to exclude companies involved in controversial industries.
  • Understand ESG criteria. There is no universal standard governing all ESG criteria, so it’s important to understand what metrics your target funds are employing. Look for transparency and whether managers consider robust, reliable data sources.
  • Evaluate the fund’s track record. Sustained, positive investment returns are still a focus for ESG investors. Review the fund’s historical performance—just keep in mind that past performance is not indicative of future results.
  • Consider fees and costs. ESG funds are known for having higher expense ratios than other types of funds. Compare the fees associated with your fund to ensure you’re minimizing your costs. Higher fees can erode your returns over time.
  • Seek out independent ratings and certifications. Consider independent ratings and certifications provided by organizations such as Morningstar, MSCI, or the United Nations-supported Principles for Responsible Investment (PRI). These ratings can provide additional insights into a fund’s ESG credentials and commitment to sustainable investing.

It’s essential to conduct thorough research and due diligence to choose an ESG fund that aligns with your values, investment objectives and risk tolerance. If you’re unsure about selecting an ESG fund or need personalized guidance, talk to a financial advisor who can help you navigate the available options based on your specific needs.

The author(s) held no positions in the securities discussed in the post at the original time of publication.

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Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.

Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.

As an expert in the field of Environmental, Social, and Governance (ESG) investing, I have a comprehensive understanding of the concepts and strategies discussed in the article. With a deep knowledge of financial markets, investment vehicles, and ESG principles, I am well-equipped to analyze and elaborate on the information provided.

1. Vanguard ESG U.S. Stock ETF (ESGV):

  • Expense Ratio: 0.09%
  • Dividend Yield: 1.21%
  • Avg. Ann. Return Since Inception (September 2018): 11.01%
  • Key Features: Diversified portfolio with around 1,500 holdings, excludes stocks not meeting ESG criteria, no exposure to adult entertainment, alcohol, tobacco, etc. Significant allocation to the technology sector.

2. Pimco Enhanced Short Maturity Active ESG ETF (EMNT):

  • Expense Ratio: 0.25%
  • Dividend Yield: 5.20%
  • Avg. Ann. Return Since Inception (December 2019): 1.78%
  • Key Features: Actively managed, aims to preserve capital while maximizing income, invests in high-quality, short-term, dollar-denominated debt. Emphasis on benefitting from interest rate hikes.

3. Nuveen ESG Dividend ETF (NUDV):

  • Expense Ratio: 0.26%
  • Dividend Yield: 3.04%
  • Avg. Ann. Return Since Inception (September 2021): -0.98%
  • Key Features: Passively managed, focuses on high-dividend U.S. stocks screened for specific ESG criteria. Top holdings include Pfizer, Pepsico, Coca-Cola, etc.

4. Fidelity U.S. Sustainability Index Fund (FITLX):

  • Expense Ratio: 0.11%
  • Dividend Yield: 1.23%
  • 5-Year Avg. Annual Return: 12.62%
  • Key Features: Low-cost core stock fund tracking MSCI USA ESG Index. Diversified portfolio with 273 holdings, outperformed its category average over the past two, three, and five years.

5. Fidelity International Sustainability Index Fund (FNIDX):

  • Expense Ratio: 0.20%
  • Dividend Yield: 2.04%
  • 5-Year Avg. Annual Return: 3.59%
  • Key Features: Adds international diversity to ESG portfolio, tracks MSCI All Country World Index (minus U.S. components). Over 900 holdings, with a focus on developed and emerging markets.

6. Calvert US Mid Cap Core Responsible Index Fund (CMJAX):

  • Expense Ratio: 0.49%
  • Dividend Yield: 0.71%
  • 5-Year Avg. Annual Return: 8.98%
  • Key Features: Emphasis on mid-cap stocks, around 80% of the portfolio. Focus on responsible businesses, screening for environmental, social, and governance factors.

7. BlackRock Sustainable Advantage CoreAlpha Bond Fund (BIAAX):

  • Expense Ratio: 0.54%
  • Dividend Yield: 2.60%
  • 5-Year Avg. Annual Return: 0.38%
  • Key Features: Actively managed sustainable bond fund. Screening for positive societal impact. Around 480 bonds with an effective duration of 6.07 years.

Understanding ESG Investing:

  • ESG investing focuses on three core pillars: Environmental, Social, and Governance.
  • Environmental considerations include a company's impact on the environment, use of renewable energy, and sustainability efforts.
  • Social factors encompass fair compensation, LGBTQ+ equality, racial diversity, and inclusive hiring practices.
  • Governance evaluates how management addresses the interests of employees, shareholders, and customers, as well as executive compensation and board diversity.

What Are ESG Funds:

  • ESG funds are thematic mutual funds or ETFs that incorporate environmental, social, and governance factors in their investment strategies.
  • They may use positive or negative screening to select companies based on ESG performance.
  • ESG funds aim to align investments with values, supporting sustainability, social responsibility, and good governance.

How Do ESG Funds Work:

  • ESG funds can be actively or passively managed.
  • Active funds conduct independent research to select securities, while passive funds track third-party indexes based on ESG criteria.
  • Investors should understand the fund's methodology, whether it uses positive or negative screening, and its approach to portfolio construction.

How to Choose an ESG Fund:

  • Define your ESG focus, whether it's environmental, social, or governance issues.
  • Research fund strategies, considering positive or negative screening approaches.
  • Understand the fund's ESG criteria and transparency.
  • Evaluate the fund's track record and historical performance.
  • Consider fees and look for independent ratings and certifications from organizations like Morningstar, MSCI, or PRI.

In conclusion, ESG investing involves a nuanced approach that goes beyond financial metrics, considering the broader impact of investments on the environment, society, and governance practices. The provided information offers a comprehensive guide to selecting ESG funds based on specific criteria and investment goals.

The Best ESG Funds Of January 2024 (2024)
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